Finance Digital Transformation Spend Spikes

Mid-sized financial institutions more than doubled their investments in digital transformation in fiscal year (FY) 2022, recent research from Cornerstone Advisors and Alkami Technology finds.

According to the 2023 Digital Banking Performance Metrics report, mid-size banks and credit unions spent nearly $425,000 per $1 billion in assets for digital transformation in FY 2022 – up from an average of just over $200,000 per $1 billion in assets for FY 2021.

“The banks and credit unions in this report with the best overall financial performance consistently outperform their peer financial institutions on a wide range of digital banking metrics,” said Ron Shevlin, Cornerstone’s chief research officer. “The correlation is strong enough to suggest that institutions with improved digital banking performance are likely to improve overall business performance.”

According to the research, banks’ investment in digital transformation will pay off over time, as more account holders are increasing their usage of key digital banking options. Some of the recent trend data:

• Mobile deposit popularity is surging, with 52 percent of active digital banking users depositing checks via mobile devices in 2022, up from 37 percent the year before;
• Loan applications are a big digital banking growth area with nearly half (47 percent) of all loan applications in 2022 coming via digital channels, up from just 36 percent in 2021;
• Peer-to-Peer (P2P) payments are seeing increased adoption with active P2P payment users as a percentage of digital banking users doubling from 12 percent to 25 percent in 2022; and
• Mobile payments are fragmented with 70 percent using more than one provider, and 49 percent using three or more. Three out of four Gen Z and Millennial consumers are using PayPal.

The research comes from a sample of 87 financial institutions – 49 banks and 38 credit unions – with an average asset size of $4.4 billion in FY 2022. Participating institutions range in asset size from $300 million to $44 billion.

Overall, the report says that 69 percent of checking account holders are now active digital banking users, up from 67 percent in 2021. Meanwhile, an average 56 percent of checking account holders at surveyed institutions actively accessed mobile banking options in 2022.

The research also shows that the highest-performing financial institutions, accounting for 22 percent of the financial institutions surveyed, are those most aggressively investing in emerging technologies – such as AI, blockchain, and augmented reality.

“Cornerstone’s research indicates that banks and credit unions are most likely to succeed with digital banking initiatives when they provide users with a feature-rich, user-friendly digital banking experience and foster a culture where these initiatives are linked to business objectives,” said Allison Cerra, Alkami’s chief marketing officer.